U.S. Senate Wages Fresh War Against Big Banks

On Saturday, as part of a marathon voting session in the Senate to pass the country's first budget in four years, a measure was also approved 99-0 that sought to "end subsidies" based on size for the nation's six largest financial institutions.

In essence, the Senate is saying banks should sustain an extra cost- not a lower cost-for being big.

While many ideas for the tactic have been in the works since last year, it appears the so-called surcharge will emerge as yet another extra layer of capital banks must hold, according to a spokesman for Sen. David Vitter, R-La., co-sponsor of the bill. The spokesman said a separate bill outlining the plan could be introduced in the Senate as early as April, though the details of suggested capital levels or thresholds could not be learned.

The idea appears to have the backing of the Federal Reserve: It was first introduced by Sen. Vitter and Sen. Sherrod Brown, D-Ohio, in a letter to Chairman Ben Bernanke in August 2012, and Bernanke referenced the move in his annual press conference last week.

When asked about how Washington would go about fixing banks that were "too big to fail," Bernanke responded: "One of the things that will be proposed and is not in effect yet will be surcharges on the largest banks, that is, the largest financial institutions will have to hold more capital as a percent of their risk-weighted assets than smaller banks do."

This would come on top of already-steep capital demands to which the largest banks have had to adjust in the last few years. Under Basel III, JPMorgan Chase and Citigroup must post ratios of 9.5 percent of Tier 1 capital. For Bank of America, Goldman Sachs and Morgan Stanley, the level is 8.5 percent. Wells Fargo, the sixth bank to be fingered in the Senate's bill, is the lowest, at 8 percent.

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